An extension of Greece’s current bailout package until the end of the year is at the centre of talks taking place in the Eurogroup, according to a senior EU diplomatic source who did not rule out the possibility of a third bailout plan for Athens.
Greece’s current bailout plan expires at the end of June “but because there has been some delays, we haven’t had time to prepare the next steps,” said the diplomat, who was briefing French journalists on condition of anonymity Tuesday (23 June).
“The Eurogroup will probably have to discuss the extension of the existing programme,” the source indicated, saying the extension would span “several months”.
“On the duration, we will see, it could be end of the year or beginning of next year.”
Greece is hoping a funds-for-reforms deal will release the €7.2 billion left in Greece’s bailout before the end of the month. But national parliaments may only approve the disbursement once the Greeks pass laws to enact their reform promises.
This leaves Greece too little time to pass the June deadline without defaulting on its debt. Athens must repay the International Monetary Fund (IMF) €1.6 billion by June 30 or be declared in default.
A so-called “staff level agreement” on the review of Greece’s current bailout plan has to be concluded – possibly at the Eurogroup meeting Wednesday evening – in order to unblock the remaining funds.
But even assuming the Eurogroup agrees to extend the current bailout plan, the question of a deeper restructuring of Greece’s debt will eventually return to haunt negotiators, the diplomat said, adding this would require a “political mandate”.
Leftist Greek Prime Minister Alexis Tsipras has long sought a renegotiation of Greece’s debt, which amounts to some €320 billion or nearly 180% of annual economic output. Tspiras says the debt must be radically restructured if Greece is to have any chance of recovery.
A key topic in the talks currently taking place in Brussels is “how to define this mandate”, the diplomat indicated.
France comes out in defence of Greece
French Finance Minister Michel Sapin on Tuesday called for a “comprehensive and enduring” agreement between Greece and its creditors, saying a deal was possible “by the end of the week”.
“What we need, along with Greece, is a comprehensive and enduring agreement, not a deal that will last a few days and which will just push back the problems, the difficulties and the uncertainties until mid-July, mid-August or the end of the year,” Sapin told France’s parliament.
He said a deal was needed that would give Greece visibility in order to revive its economy, adding that Greece had made “solid, serious” proposals that merited consideration.
Asked whether additional funding for Greece or a third bailout plan was on the table, the diplomat replied: “There are financial instruments which could be unblocked – pending technical work – to cover Greece’s needs, without having to resort to new loans or aid” from EU member states.
He said such instruments include, for example, a fund for the recapitalisation of Greek banks, the Hellenic Financial Stability Fund (HFSF), as well as the Securities Markets Programme (SMP) at the European Central Bank, which could both be mobilised.
“So it’s possible.”
Germany opposes another extension to the current bailout programme so such stop-gap solutions seem the most likley option.
The anti-austerity party Syriza won an overwhelming victory in the Greek elections on January 25, but nonetheless failed to obtain an absolute parliamentary majority.
The party leader Alexis Tsipras provoked mixed reactions among his EU counterparts, announcing that the "vicious cycle of austerity is over".
Reforms offered by Athens have failed to convince the Eurogroup and the country's creditors, and Greece now finds itself unable to pay its debts and in a more precarious situation than ever.
The proposals were a bid to unlock the final €7.2 billion tranche of its international bailout, which creditors have refused to release unless Greece agrees to more austerity measures. Greek Prime Minister Alexis Tsipras was elected promising to end five years of austerity.
Without the bailout cash Greece will be unable to meet a €1.5 billion International Monetary Fund (IMF) payment on Wednesday (30 June), and a default could send Athens crashing out of the single currency and possibly the EU.
European Council Donald Tusk called an emergency summit of Eurozone leaders in a bid to break the deadlock.
- 24 June: Euro zone finance ministers (Eurogroup) meeting on Greece
- 25-26 June: EU summit in Brussels
- 30 June: Greece must repay around €1.5 billion to the IMF and its bailout programme ends